KARACHI: Pakistan’s public debt has increased by 24.5 percent year-on-year (YoY) in October, with analysts saying that rising borrowing needs and a lack of external funding contributed to swelling in the numbers.
The public debt hit Rs50,151 trillion in October, 2022, as compared to Rs40,279 trillion recorded in the same month last year, the central bank data showed on Monday.
The debt rose by 1.51 percent month-on-month. It was Rs49.401 trillion in September, and had stood at Rs47.784 trillion at the end of June 2022. Analysts said one of the major difficulties the government had was managing its debt obligations.
The public debt has increased as a result of the government's rising borrowing needs to cover the budget deficit and a lack of external funding. One of the causes of the nation's expanding debt, which includes increasing fiscal and external obligations, is debt servicing.
Costs of external borrowing are impacted by the rupee's depreciation against the dollar. When the interest rates increase, local borrowing costs also go up, according to analysts. A major portion of the public debt sourced from the domestic debt, which stood at Rs32.501 trillion in October, compared with Rs26.467 trillion a year ago.
The State Bank of Pakistan (SBP) data showed that long-term debt rose to Rs25.689 trillion in October from Rs20.012 trillion a year earlier. The short-term debt was recorded Rs6.763 trillion, compared with Rs6.416 trillion by the end of October 2021.
The external debt has surged to Rs17.650 trillion from Rs13.811 trillion. A large external financing gap, challenging global financial markets, devastating floods, and local political instability have increased the risk of timely external debt payments, according to a recent report from Topline Securities.
Falling foreign exchange reserves and the rising external funding gap are worrisome. Though the current account deficit is coming down after currency devaluation and other tightening measures, the biggest worry is external debt repayment, the report said.
“Pakistan’s external debt repayment obligations are becoming too large to handle and restructuring is inevitable. Due to these high debt repayments and ongoing current account deficit, Pakistan’s external funding gap is increasing and is becoming a bone of contention,” it added.
When global markets are challenging, it is difficult for Pakistan to raise more debt from Eurobonds or other commercial sources. “Pakistan’s funding gap has now ratcheted up to over $31 billion as per the last published IMF staff report for FY2023. It was $25 billion in FY2019 and was in the range of $10-17 billion during the financial crisis of FY2008,” the report stated.
It could be argued though as a ratio to the country’s gross domestic product, the external funding gap was consistent with both FY2019 and FY2008, the overall forex reserves remained low hampering Pakistan’s ability to service the debt, it noted. “It is interesting to find that the gap remains in excess of $35 billion in the next few years as per the IMF. The funding for this gap is questionable also, we believe.”
The report revealed that over $10 billion were assumed from the private sector, including debt and equity portfolio flows, which is highly unlikely given Pakistan’s current credit rating (Moody Caa1 & Fitch CCC+) and global market dynamics.
“We further believe that this is equivalent to the ongoing IMF programme being not fully funded. This may be why the restatement of the IMF programme failed to calm the markets where concerns remain on the country’s external account.” it said.